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Credit Union Personal Loans Often Cheaper, More Forgiving

July 3, 2017
Banks & Credit Unions, Personal Loans
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Your local credit union should be your first stop for borrowing money, especially if you don’t have perfect credit. Credit unions often have benefits over other lenders, including:

  • Lower interest rates for people with average or bad credit.
  • More flexible terms.
  • Loan officers willing to look at more than your credit score.

How a credit union personal loan works

Credit unions are not-for-profit financial organizations that serve members who live, study, work or worship in a particular area. If you meet the credit union’s requirements, you typically pay a one-time membership fee and a deposit of up to $25. To apply for a loan, you need to become a member first.

» MORE: Credit unions vs. banks: The difference and why it matters

Many credit unions offer both unsecured and secured personal loans. Both types of loans carry fixed rates, and your exact rate depends on your credit score, credit history, income and debts.

A low credit score alone won’t disqualify you from getting a loan. Credit unions also look at your whole financial picture as well as your standing as a member of the credit union. Still, a good score will get you a lower rate than someone with bad credit, so it pays to know your score.

Credit unions come in many sizes, so the application process, approval criteria, rates and other aspects of a personal loan vary. Some allow online-only applications; others may require you to start the application online and walk into a branch to complete paperwork.

» MORE: NerdWallet’s best credit unions

Credit union vs. online lender

Some banks also offer personal loans, but they typically give the best rates only to those with excellent credit profiles. Online lenders offer loans for bad credit borrowers, but they don’t always consider your overall financial picture.

There are some downsides with credit unions. Many conduct a hard credit check on applications — which can cause a small temporary dip in your credit score — while online lenders typically perform soft credit checks to see if you prequalify for a loan. Credit unions also may not have the latest online or mobile banking technology you would expect from a big bank.

But loans from credit unions tend to be cheaper than those from online lenders, especially for borrowers with bad credit scores. The average rate online lenders charged to customers with scores between 630 and 689 is 21.8%, according to NerdWallet’s survey of lender rates.

» MORE: Compare estimated rates from multiple online lenders

Cost of a credit union personal loan

There are two types of credit unions: federally chartered and state chartered.

At federal credit unions, annual percentage rates on most types of loans are capped at 18%. Your credit union may choose to charge an application fee that is not part of the APR.

In the last five years, federal credit unions charged an average APR of 9.3% for a three-year loan, according to data from the National Credit Union Administration.

State-chartered credit unions may have higher rates than federal credit unions, depending on where you live. State credit unions charged an average personal loan APR of 11.3% in the last five years, according to data compiled by the Credit Union National Association.

Here are personal loan rates from three credit unions that NerdWallet rated as easy to join:

 APR rangeLoan amounts
Alliant Credit Union4.5 stars out of 512.15% to 27.15%$500 to $50,000
Consumers Credit Union4 stars out of 511.24% to 21.99%$500 to $40,000
First Tech Federal4 stars out of 58.5% to 17.99%$500 to $50,000

» MORE: NerdWallet’s review of First Tech personal loans

Next steps

If you’re already a member and you can withstand a temporary hit to your credit score, a credit union may get you the cheapest loan. In any situation, NerdWallet recommends comparing loans from multiple lenders. Click the button below to pre-qualify on NerdWallet and compare your estimated rate with one from your credit union.


A previous version of this article misstated the limit for the Alliant Credit Union personal loan. It is $50,000. This article has been corrected.

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